Although most government activity is financed directly through taxes and the issuance of government debt instruments, a large amount is financed in other ways. To satisfy additional governmental financing needs, such as infrastructure, housing, education and import/export activities, a wide range of bonds and notes are issued. An agency security is a debt security issued by a national government agency or government-sponsored enterprise (GSE) for a public purpose in a variety of structures, coupon rates and maturities – whether it has the explicit or implicit backing of the government depends on the issuer.
Agency securities that are issued by the Small Business Administration (SBA), the Federal Housing Administration (FHA), the Government National Mortgage Association (Ginnie Mae) and the Tennessee Valley Authority (TVA) are backed by the full faith and credit of the US government. This means that the US government explicitly unconditionally guarantees the payment of interest and principal on these securities.
| Securities of US National Government Agencies | |
| Common Name | Legal Name |
| Ginnie Mae | Government National Mortgage Association |
| Farm Credit | Federal Farm Credit Banks Funding Corporation |
| FHA | Federal Housing Administration |
| FHLBanks | Federal Home Loan Banks |
| SBA | Small Business Administration |
| TVA | Tennessee Valley Authority |
Some agency issues are subject to call risk and all are less liquid than Treasury bonds. Such agencies will provide a slightly higher yield than noncallable agencies of the same maturity.
The interest income from the securities of US national government agencies is exempt from US state and local taxes. However, agencies are subject to US federal taxation, like US Treasuries.